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Builder optimism strongest in 5 years

Posted: August 17, 2012 2:00 a.m.
Updated: August 17, 2012 2:00 a.m.

Builders work on a house in Pardee Homes' Crestview area in Santa Clarita.

 

The recently released results of two homebuilder surveys echo growing homebuilder confidence for newly built single-family homes.

Builder confidence improved for the fourth consecutive month, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index, released Wednesday. There was a two-point gain to 36 on the index, building on a six-point increase in July.

The gains marked the highest level since February 2007 when the home market began crashing.

Another earlier survey, recently released by Ernst & Young LLP, of chief financial officers and tax directors from more than two dozen major U.S. private and public homebuilders revealed cautious optimism that the single-family-home market is poised for another period of growth. Survey responses reflect that the market has achieved stability and is preparing for expansion.

“It has been stabilized for over a year, and is already expanding,” said Lance Williams, founder and president of Williams Homes. “We have seen sales increases in all our active communities this year, and we are not alone.”

Homebuilders are bullish about 2013, Ernst & Young reported, with almost 95 percent of respondents projecting break even or net income gains next year.

Privately held, Santa Clarita based Williams Homes, however, is recording increases this year. The homebuilder has projects in Los Angeles, San Bernardino and Ventura counties.

“We will post a strong gain this year,” Williams said.

Gauging builder perceptions of key indicators of an improving market, NAHB/Wells Fargo found homebuilder confidence rose on the home market index.

Scores measuring current sales conditions and traffic of prospective buyers each rose three points, to 39 and 31, respectively, while the scores gauging sales expectations in the next six months inched up one point to 44. Any number greater than 50 indicates that more builders view sales conditions as good as opposed to poor.

Builders’ perspective of factors in the new-home buying market is the best it has been in more than five years, said Barry Rutenberg, chairman of the NAHB in a statement.

The Ernst & Young survey of 26 homebuilders found much of the optimism is based on the fact that average selling prices for new homes are on a definite uptick. In 2011, the majority of homebuilders felt prices would remain stagnant or decrease. But this year, a majority of respondents, 58 percent, said they believe prices will increase during the next 24 months.

Consumer confidence is a big factor for homebuilders in projecting sales growth, according to the survey. But builder confidence in affordable interest rates is stronger.

“New homes are at some of the most affordable levels in memory — in many cases equaling the affordability of the late 1990s,” said Holly Schroeder, CEO of the Building Industry Association’s Los Angeles/Ventura chapter. “This affordability is creating cautious optimism among home builders, who are seeing steady traffic and a modest uptick in buyers.”

Respondents in the Ernst & Young survey indicated that the West Coast, Texas and Southeast markets are expected to be the most profitable for most homebuilders this year.

Though new homes represent less than 20 percent of the housing sales market, according to the NAHB, each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue.

Describing the market as still very fragile, however, NAHB Chief Economist David Crowe said homebuilders still express frustration regarding the inventory of distressed properties, inaccurate appraisal values, and the difficulty both builders and homebuyers have accessing credit.

“Housing production and construction jobs, while improving, remain far below levels needed for a healthy industry and sustained economic recovery,” Schroeder said.

 

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